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Unlikely expansion: When retail brands go wholesale

Shoe retailer Aldo’s wholesaling operations now make up 10 per cent of its total $1.8-billion in annual sales.

Christinne Muschi/The Globe and Mail

Aldo Group Inc. is on the hunt for retail space – inside the stores of other retailers, as the shoe specialist pursues a cost-conscious expansion in which it is teaming up with a growing roster of indirect rivals.

Merchants ranging from Aldo to fashion purveyor Joe Fresh (owned by grocery giant Loblaw Cos. Ltd.), Reitmans (Canada) Ltd. and Hudson's Bay Co., have stepped up their partnering efforts, even as they raise the stakes by being tied to sometimes unstable chains.

Both Aldo-branded footwear and Joe Fresh styles are carried in shops at U.S.-based J.C. Penney Co., which is struggling to reverse its sagging sales after firing its high-profile chief executive last week.

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Next fall, Aldo will start supplying its namesake shoes to HBC's U.S. sister chain Lord & Taylor, as well as some of its Canadian Hudson's Bay stores.

The multichannel distribution allows Aldo to expand rapidly into new markets without the expense or time needed to open new stores.

"It's really going to be one of our biggest growth pillars," said David Bensadoun, president of the wholesale division at Montreal-based Aldo, whose footwear is also stocked at Nordstrom Inc., and others.

"We have a very strong worldwide [production] structure in place … We're making better use of something we're already invested in," Mr. Bensadoun said.

Retailers are trying to cash in on brand awareness and production expertise to reach more customers in a cost-savvy way. But the business model isn't without drawbacks, as merchants lose some control over the placement, prominence and marketing of their products.

"It's a matter of being able to expand the operation," said Jeremy Reitman, chief executive officer of Reitmans, which last fall began offering its Thyme Maternity line within U.S. Babies "R" Us stores after having stocked it at its Canadian outlets. "The name is out there; the customers recognize the name."

Aldo's wholesaling operations now make up 10 per cent of its total $1.8-billion in annual sales after less than three years in operation. Its goal is to increase this to as much one-third of revenues in the next five to 10 years, Mr. Bensadoun said. (Its wholesaling includes producing other retailers' private labels.)

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The strategy speaks to the power of brands in today's retail market, said Phil Lichtsztral, partner at Richter Retail Consulting Services in Montreal. "If you have a brand, such as Aldo and Joe Fresh, these are brands that are sought after and are attractive to fellow retailers."

For years, in a reverse trend, manufacturers – from Nine West to Apple – have set up their own standalone stores to showcase their products and ensure their brands are not lost among many others within a larger retailer.

"Retailers want to be wholesalers and wholesalers want to be retailers," Mr. Lichtszral said. "The lines are blurred everywhere … Wholesale distributors are opening their own websites and shipping directly to the consumer and, in doing that, are technically competing with their retail customers."

Last month, J.C. Penney started to sell Joe Fresh in almost 700 stores, quickly expanding the Canadian line's U.S. footprint after it had launched a handful of its own Joe Fresh outlets in New York.

Sarah Davis, Loblaw's chief financial officer, said sales in the United States in the first few weeks were stronger than anticipated and the added volume has reduced costs overall. Because of the wholesale arrangement, the U.S. retailer becomes the owner of the merchandise and takes on the risk of having to slash prices – and margins – to clear out products if they don't sell.

"There's been lots of speculation about J.C. Penney and what's going to happen with them, but from our own financial risk perspective, it's a fairly low-risk deal for us," Ms. Davis said last month.

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HBC has similar arrangements in selling its Black Brown men's wear line to the U.S. Belk department store chain; and its HBC Signature multistriped products – from a $10 set of cards to a $2,400 fur throw – to airport and other shops.

Starbucks Corp. has paved the way in building its wholesale business into one which it is betting could rival that of its U.S. retailing in sales and profitability, moving beyond coffee to include food and other drinks at a time of limited growth opportunities in U.S. retail. "The growth of this business has been quite significant with over $1-billion in sales over the last 12 months and 100,000 points of distribution," chief executive Howard Schultz said last month.

Aldo's Mr. Bensadoun said he's willing to lose some control in return for added revenues, light capital investment, and the potential halo effect of being tied to a retailer such as Nordstrom, which is opening its first stores in Canada starting next year. "When you rub shoulders with other strong brands, you really elevate your own brand," he said.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More


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